Dollar Gains on Major Currencies

By Hobart RowenBy Hobart RowenFebruary 14, 1981

The West German central bank, fighting a precipitate slide in the mark against the dollar to its lowest point since 1977, again intervened on a massive scale yesterday in an unsuccessful effort to prop up the German currency.

The dollar remained strong against all major European currencies, winding up at its best level in many years against the mark, the Swiss franc and the French franc. It closed at 2.2170 marks, well over Thursday's price of 2.1855 marks.

Perhaps even more dramatically, the dollar broke the 2-Swiss-franc barrier for the first time in three years, closing at 2.0150 Swiss francs against 1.9950 on Thursday.

Gold, meanwhile, was firm, but in view of the strength of the dollar, did not have a major recovery. The New York Commodity Exchange settlement price was $492 an ounce, down from $495.80. It was unchanged at $495.80. It was unchanged at $490.50 in Zurich and up $7 in London to $493.50.

In the past week, mostly in the past couple of days, the dollar has risen 3.72 percent against the mark and 3.9 percent against the Swiss franc -- extraordinarily wide movements that traders could not explain readily. f

U.S. interest rates are high, and there seems to be growing confidence that President Reagan will accomplish many of his economic goals. But those factors have been present for some time, explaining the longer-term trend but not necessarily the dramatic upsurge to the point where the dollar is stronger and the mark weaker than they have been in years.

Ron Leshing, foreign exchange analyst at Chase Manhattan Bank, told United Press International that the dollar surge "reflects the underlying depth and strength of the U.S. economy relative to its major trading partners. Despite our troublesome inflation and budget deficits, we have political, economic and natural resources that many major countries lack."

In this spectactular week, the German central bank reportedly has sold more than a billion dollars to buy up marks in an effort to keep the German currency within the limits established by the European Monetary System. Under the EMS, the mark must maintain a fixed relationship with other European currencies.

But the propping-up process for a weak mark has proved to be costly. There were even rumors in New York markets yesterday that influential German private bankers were urging the West German government to consider withdrawal from the EMS.

The strength of the dollar in the past few days, even though there has been little change in international money market relationships, "can only be explained as a psychological reaction," one long-time observer of the international scene said.

"When the dollar crossed the 2-marks-to-a-dollar point -- and even better, when the dollar was able to buy 2 Swiss francs -- people jumped in to buy for fear of missing the boat," the observer said.Less than 18 months ago, when the Swiss franc was riding high, money market speculators were talking of a 1-to-1 Swiss franc parity with the dollar.

Over the last year, the dollar has appreciated about 20 percent in terms of the mark. Looking at it the other way around, the mark has depreciated by 27 percent against the dollar. The weakness in the German position is perhaps even more dramatic when measured in terms of the yen: While the dollar has declined 15 percent against the Japanese currency, the mark has shrunk by an astonishing 33 percent against the yen in the past year.

Before this week's surge, the last time a dollar could be traded for 5 francs was seven years ago.

The dollar also rose to 207.50 yen from 205.20 and was worth $1.2014 in Canadian money, up from $1.987. Even the strong British pound couldn't hold the dollar back. Sterling fell from $2.3140 Thursday to $2.2845 yesterday.